2 growth stocks to buy for a good year

The end of 2021 is upon us and the last month of trading is off to a difficult start. But it’s not all bad news if you’re sitting on some cash. The stock prices of several well-run tech companies are down significantly, which could be an opportunity to put some money to work by 2022.

Artificial intelligence fintech stock Holdings reached (UPST 0.25% ) is down 54% from its all-time high, and is one of the fastest growing companies in the market right now. Semiconductor specialist Cohu (COHU 3.58% ) is having one of its most profitable years of all time, and with 2022 shaping up to be a repeat, investors might like the stock at its current 16% discount from November prices.

Image source: Getty Images.

Let’s take a closer look at these two actions to consider as the New Year approaches.

1. The case of Upstart

Upstart is on a mission to overthrow the FICO credit scoring system, which Upstart management says fails to take into account some of the nuances of modern economics. It does this by using artificial intelligence (AI) to assess thousands of data points when determining the creditworthiness of a potential borrower.

Upstart processes cannot be replicated using existing technologies, and evidence of the superiority of Upstart assessments is already visible. The company says its AI algorithm approves loans that default 75% less of the time than loans rated using traditional methods. It is an attractive risk reduction proposition for banks wishing to use its services.

Upstart does not lend money itself. It simply uses its technology to make loans to banks for a fee, which means it is not directly exposed to the credit risk associated with these loans. This means that the volume of loans is large – more loans issued means more income for Upstart. Its recent entry into the auto credit market is therefore essential to maintaining its growth. Additionally, the loan amount tends to be larger for automobiles than for typical unsecured personal loans.

The number of auto dealers choosing to use Upstart’s retail car lending and sales platform has skyrocketed in the past 12 months.

Metric

Q3 2020

Q3 2021

Growth

Reseller partnerships

91

291

219%

Data source: Upstart.

After Upstart initially announced it would generate $ 500 million in revenue in 2021, it is now on track to generate over $ 800 million, crushing that figure. It’s profitable too, with $ 1.96 in estimated earnings per share for the year. This puts the company’s stock at a price-earnings multiple of 89, which certainly isn’t cheap – the Nasdaq 100 the stock index trades at a multiple of 34, for example.

That said, Upstart’s rapidly expanding vehicle dealer footprint could be the forerunner of significant revenue growth in 2022, beating even the most optimistic forecasts in the same way as its 2021 result. That is. why Upstart could beat its $ 1.17 billion estimated sales in 2022 and be one of the top performing stocks next year.

A digital image of a semiconductor array with a car printed in the center.

Image source: Getty Images.

2. The case of Cohu

In 2021, the world was facing an overwhelming shortage of semiconductors, the crucial computer chips that provide the processing power for most of our precious electronics. Cohu manufactures critical test and handling equipment for the world’s largest chipmakers, and it is having an exceptional year as it rapidly increases its production capacity.

As new vehicles, in particular, are designed with more digital functionality, demand for these components is skyrocketing and producers affected by the pandemic continue to run to catch up. U.S. national auto inventory data, which is tracked by the Federal Reserve in St. Louis, is at an all-time low (dating back to 1993) as half-built vehicles wait for needed chips.

It highlights the effect that semiconductor shortages have on the ability of automakers to maintain a sufficient supply of vehicles on their dealership lots. And for consumers, that means soaring prices. According to US inflation data, new car prices have increased 9.8% in the past 12 months alone.

To help alleviate these pressures, Cohu has put more emphasis on its automotive segment to the point that it is now the company’s largest in terms of revenue, at 20%. It is driven by Cohu’s Neon Inspection System, designed to handle tiny chips at incredibly high speeds while retaining the ability to effectively detect flaws and flaws. These are the semiconductors that are often found in the multitude of sensors and displays in new cars.

Cohu is on track to generate earnings per share of $ 3.01 for 2021, which means his stock is trading at a price-earnings multiple of just 11. Its stock is expected to triple to match its measured peers’ basket. speak IShares Semiconductor ETF, which trades at a multiple of 34.

With analysts expecting the company to have an equally strong year in 2022, and many auto heavyweights expect chip shortages to persist, Cohu shares could be the perfect place for the new year.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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